Despite the hopes of some critics, a culling of the TSX Venture Exchange is not about to happen.

Venture president John McCoach confirmed that while the exchange is looking at every possible option to “revitalize” its business model, a mass delisting has been ruled out.

“We did look at that very seriously,” he said in an interview. “We think there’s room for making our continued listings standards simpler. But as far as moving the bar up or down, we think it’s in about the right place.”

The Venture has simply been mauled by the commodity price collapse and lack of financing for junior resource firms. The S&P/TSX Venture Composite Index, despite rising 11 per cent this year, is down an astonishing 83 per cent from its 2007 peak.

But the performance of the index masks the exchange’s much bigger problem. Hundreds of companies have run out of cash and stopped doing anything to create value for shareholders as capital for upstart resource plays has dried up over the past few years. These inactive firms are derisively known as “zombies.”

Ben Nelms for National Post

Critics say the zombies are a real problem, complaining that they distract attention from the active companies and drag down the reputation of Canada’s capital markets.

Some even see them as a threat to investors. They believe TMX Group Inc., the owner of the Toronto stock exchanges, is not doing enough to delist such companies because it wants to maximize listing fees in what is becoming an increasingly competitive market.

“If we could delist a bunch of these zombies, it’s only going to help focus talent and focus investor money in the right assets,” said Trent Mell, president of mining finance firm PearTree Securities Inc. “If you don’t flush the system, then you’re going to prolong the pain.”

McCoach did not dismiss that line of thinking, saying the argument for mass delisting is “fair comment.” But he noted that it is a minority view and said there isn’t evidence to support that it would be an overall benefit.

Even if delisting isn’t a priority, TMX knows the status quo isn’t acceptable for the Venture

The junior market community definitely prefers the status quo. Early this year, McCoach hosted forums across the country on “revitalizing” the Venture after TMX released a whitepaper full of proposals in December.

These meetings were largely attended by employees and financiers of junior companies, and, not surprisingly, they were much more concerned with issues such as short selling and listing costs than delistings.

Rather than undergo a mass culling, Venture management believe they have addressed the problem of inactive companies with the NEX board, a trading forum for companies that have fallen below the exchange’s ongoing listing standards.

The NEX acts as sort of a penalty box where companies are given an opportunity to get back into compliance so that they can return to the main board. McCoach noted that companies still have to meet ongoing disclosure requirements to maintain listings on NEX.

The NEX is a busy place, with 398 companies at last count. Trading has been halted or suspended in more than half of them.

Since the NEX’s launch in 2003, 388 firms have managed to get back into compliance and return to the main board. That shows the model can work for some companies.

But for many NEX companies that are effectively shells, it is hard to fathom a return to the main board in their current form.

One NEX company called World Organics Inc. has maintained a listing even though it has not filed any financial results since 2012. (It has filed a mind-boggling 71 default status reports, which is impressive in its own way.)

But even if delisting isn’t a priority, TMX knows the status quo isn’t acceptable for the Venture.

The exchange’s “revitalization” plan contains 25 different initiatives designed to boost its relevance. They fall under three categories: reduce costs, expand investors and liquidity, and diversify and grow the base of listings (which is still 70 per cent mining and energy).

Those are all noble ideas, and they may be essential as TMX faces growing competition from the Canadian Securities Exchange and new entrant Nasdaq Inc.

McCoach said most of the 25 measures will be implemented in 2016. Some may bear fruit quickly, while others will take years to properly judge. Diversification, most notably, cannot happen overnight.

The recent cross-country town halls showed that the junior market community is broadly supportive of the revitalization plans. (Skeptics may argue that the recent increase in gold prices is doing more to help the Venture’s recent rise than anything TMX management could do).

But the community has some concerns that go beyond the revitalization measures outlined by TMX.

The biggest one appears to be predatory short selling, and that is out of TMX’s control. Shorting is governed by market integrity rules enforced by the Investment Industry Regulatory Association of Canada (IIROC).

McCoach said he has done plenty of lobbying with IIROC and securities regulators regarding shorting.

One change he wants to see is the re-introduction of an “uptick” rule that would only allow shorting on an uptick in the stock price. IIROC eliminated the rule in 2012, arguing that it had no impact on price movement, and bringing it back is a complicated process.

“Intuitively, (the uptick rule) makes sense,” Peartree’s Mell said. “The most vulnerable players in our market are the small-cap or micro-cap companies. If there’s any kind of liquidity, there’s a bit of a pile-on effect.”

The debate about the zombies and the Venture’s overall revitalization plan is far from over. But McCoach said he is pleased to see that people truly seem to care. His inbox has been full of feedback, and the town hall events were packed. That alone is something of a rebuke to critics who feel the junior exchange has become irrelevant after the commodity crash.

“I honestly didn’t know if we would have 30 people show up at a town hall or 300,” he said. “I was sure pleased to see it was the latter, not the former.”

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